Whether you’ve bought a Bitcoin or not, you have probably heard the term “blockchain.” A blockchain is a decentralized, distributed, and public digital ledger that is used to record transactions across many computers so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks. In theory and by design, transactions on a blockchain are secure, both from hacking and from changes made to corrupt the initial data.
According to consulting firm KPMG, blockchain technology holds great promise for increased efficiency from transparent records and a single source of truth. By creating one version of a ledger, for example, that is synchronized across computers, blockchain can help eliminate out-of-sync ledgers and, therefore, the need for reconciliations.
In the world of construction, two elements can benefit from blockchain: contracts and supply chains. In the latter area, immutable records that are visible to everyone involved allows blockchain to improve data accuracy and security and show compliance through an audit trail. For example, when supply chain information is put on a blockchain, companies can potentially reduce fraud and errors, improve inventory management, identify issues more quickly, reduce delays from paperwork, and increase trust among all parties.
One of the biggest developments underpinned by blockchain technology has been that of smart contracts. A smart contract is essentially a computer code, which can self-execute as well as self-enforce the terms and conditions laid out in a legal agreement.
Due to the decentralized nature of blockchain, a smart contract can bypass expensive middlemen such as financial institutions and attorneys. In the commercial real estate industry, smart contracts are already being used to conduct property transactions such as buying, selling, leasing, and financing.
In the U.K., commercial real estate firm SavoyStewart surveyed 544 CRE (commercial real estate) professionals to identify what they think are the biggest benefits of using smart contracts. They found 71% of professionals view increased speed as the biggest benefit from using smart contracts. Since smart contracts run on a software code, they don’t require documents to be processed manually. Consequently, smart contracts can significantly quicken home purchasing stages such as the processing of verification and ownership.
With CRE transactions typically involving multiple intermediaries such as brokers, banks, and lawyers, a smart contract has the ability to take over some or all these functions. As a result, 66% of the experts believe this will enable the exchange between the buyer and seller to be more efficient.
Similarly, with fewer or no intermediates to deal with in a smart contract, 63% state not having to extensively pay expensive fees will enable both parties (buyer and seller) to save a considerable amount of money.
Additionally, 59% rate smarts contracts as highly secure as records on blockchain are not only permanent but cannot be altered, meaning documents cannot be forged and opportunistic property scams become almost impossible.
On the other hand, only 40% appreciate the positive impact using smart contracts can have on the environment as they are paper free. With all terms and conditions required to be recorded in explicit detail, 45% see clearer communication as a key advantage when using smart contracts.
SavoyStewart also discovered that 74% of the experts place a lack of smart contract understanding/knowledge as the primary reason why the CRE industry may not use them on a greater scale going forward. And 69% feel that, until the government clearly stipulates how they intend to regulate and tax smart contract transactions, it will limit smart contract use. Just 51% attribute a lack of best practice standards as an important factor that could negatively impact the wider use of smart contracts.
In an unusual twist, 58% think data privacy compliance might be a challenging issue, since details stored on a smart contract stays forever, it may breach certain data privacy regulations, such as those regulation frameworks enabling concerned parties in a contract the power to withdraw certain/particular information at request.
KPMG agrees, noting that as blockchain decentralizes financial activities, governments will continue striving to understand and regulate the technology. And those that do so effectively will have an opportunity to attract global investment and become frontrunners in a blockchain economy.